Simon Redeems LP Interests from J. C. Penney for $248M

Simon Property Group redeemed two million units of limited partnership interest in its operating partnership subsidiary, Simon Property Group L.P., from J. C. Penney Co. Inc.

Simon Property Group is thriving, so its recent redemption of two million units of limited partnership interest in its operating partnership subsidiary, Simon Property Group L.P., from J. C. Penney Co. Inc. for a cash consideration of $248 million is news, but it’s not big news for the largest real estate company in the world.

“That’s a relatively small transaction for them; they have an $80 billion balance sheet,” Richard Moore, managing director and REIT analyst with investment bank RBC Capital, told Commercial Property Executive. “To me, it’s a bit more motivated by J. C. Penney wanting to monetize. I think they like having that cash. I don’t know for sure, but it’s certainly not a big transaction for Simon.” JCP noted in a prepared statement that the monetization of assets that are not core to its operations is, indeed, part of the struggling retailer’s current strategy.

In JCP’s first quarter report, CEO Ron Johnson conceded that “sales and profitability have been tougher than anticipated during the first 13 weeks.” For Simon, however, the picture is quite a bit rosier. The real estate company reported its second quarter results today, and its funds from operations totaled $688 million, which was an improvement over the impressive first quarter FFO of $583 million.

“They have kept their leverage low, relatively speaking, and they have done some unsecured bonds and some mortgages to lengthen the maturities schedule for their debt,” said Moore. “And they have plenty of access to equity capital, whether it’s with joint venture partners or in the market itself.” In the midst of a bevy of acquisitions and construction starts, Simon recently announced it had entered into a new $2 billion unsecured, multi-currency revolving credit facility. The multi-currency aspect of the facility will come in handy for the company’s increasing activity abroad.

“Simon’s doing great,” Moore asserted. “The outlet center business is very good and the balance sheet looks great so I think everything’s going well for them, quite frankly.”

For JCP, completion of the partnership interest transaction leaves the department store chain with 205,000 limited partnership units in Simon’s operating partnership.